UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 29)
First Union Real Estate Equity and Mortgage Investments
- -------------------------------------------------------------------------------
(Name of Issuer)
Shares of Beneficial Interest, $1.00 par value
- -------------------------------------------------------------------------------
(Title of Class of Securities)
337400105
----------------------------------
(CUSIP Number)
Stephen Fraidin, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8140
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
May 14, 1998
----------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box |_|.
Check the following box if a fee is being paid with the statement |_|. (A
fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent
of the class of securities described in Item 1; and (2) has filed no
amendment subsequent thereto reporting beneficial ownership of five percent
or less of such class.) (See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of the
Act (however, see the Notes).
SCHEDULE 13D
CUSIP No. 337400105 Page 2 of 8 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Gotham Partners, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York, U.S.A.
NUMBER OF 7 SOLE VOTING POWER
SHARES 2,601,951 Shares
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 2,601,951 Shares
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,601,951 Shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ]
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.23%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS
SCHEDULE 13D
CUSIP No. 337400105 Page 3 of 8 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Gotham Partners II, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York, U.S.A.
NUMBER OF 7 SOLE VOTING POWER
SHARES 30,449 Shares
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 30,449 Shares
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,449 Shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ]
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.10%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS
SCHEDULE 13D
CUSIP No. 337400105 Page 4 of 8 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Gotham International Advisors, L.L.C.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES 415,400 Shares
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY EACH 0
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH 415,400 Shares
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
415,400 Shares
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) [ ]
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.31%
14 TYPE OF REPORTING PERSON*
00; IA
*SEE INSTRUCTIONS
This Amendment No. 29 amends and supplements the Statement on Schedule
13D (the "Schedule 13D") relating to the shares of Beneficial Interest, par
value $1.00 per share (the "Shares"), of First Union Real Estate Equity and
Mortgage Investments, an Ohio business trust (the "Registrant"), previously
filed by Gotham Partners, L.P. ("Gotham"), Gotham Partners II, L.P.
("Gotham II"), both New York limited partnerships, and Gotham International
Advisors, L.L.C., a Delaware limited liability company ("Gotham Advisors"
and, together with Gotham and Gotham II, the "Reporting Persons").
Capitalized terms used and not defined in this Amendment have the meanings
set forth in the Schedule 13D.
Except as specifically provided herein, this Amendment does not modify
any of the information previously reported on the Schedule 13D.
Item 4 is hereby amended to add the following information:
"Item 4. Purpose of the Transaction
On May 14, 1997, Gotham and Gotham II filed with the Court of Common
Pleas a motion seeking a preliminary injunction requiring the Registrant
(and its trustees, among others) to present Gotham's proposal and
nominations at the Special Meeting and to recognize at that meeting the
vote of Shares beneficially owned by the Reporting Persons. A copy of such
motion and the supporting brief are attached as Exhibit 51 hereto and
incorporated herein by this reference. Gotham and Gotham II also sought the
Registrant's compliance with a set of written procedures previously
tendered by Gotham to the Registrant concerning the conduct of the Special
Meeting. The Registrant opposed the motion and filed a cross-motion for
sanctions. A copy of the Registrant's filing is attached as Exhibit 52
hereto and incorporated herein by this reference.
At a conference before the Court on the afternoon of May 14, however,
the Registrant orally assured the Court and Gotham and Gotham II's counsel
that it would not seek to prevent Gotham's proposal and nominations from
being presented and voted on at the Special Meeting and that the Reporting
Persons would be permitted to vote the Shares beneficially owned by the
Reporting Persons on the record date. In light of this, the Court did not
rule on Gotham and Gotham II's motion.
In addition, counsel to Gotham and Gotham II requested orally at the
conference that the Court enter an order to prevent the destruction of
documents by the Registrant or its counsel. The Registrant and its counsel
refused to consent to such an order. The Court did not rule on this
request.
On May 14, 1998, Gotham provided to the Ohio Division of Securities
certain information and materials the Division had requested pursuant to an
inquiry relating to Section 1707.041 of the Ohio Securities Act. The
statute provides that certain materials must be filed with the Division
before a "control bid" by a tender offer or a request or invitation for
tenders for certain companies with an Ohio nexus. A "control bid" is
defined to include the purchase of, or any offer to purchase, any security
of a subject company by an offeror from Ohio residents when the offeror
will be the direct or indirect beneficial owner of 10% or more of any class
of stock of the subject company. Gotham indicated in its response to the
Division that the statute did not apply to Gotham's interest in the Company
because, among other things, Gotham and its affiliates do not own, and have
not made offers to purchase, 10% or more of the Shares or any other class
of the Company's securities."
Item 7 is hereby amended to add the following information:
"Item 7. Material to be Filed as Exhibits
51. Defendants' Motion for Preliminary Injunction and Brief in Support
of Preliminary Injuntion filed in the Court of Common Pleas, Cuyahoga
County, Ohio on May 14, 1998.
52. First Union's Motion for Sanctions and Brief in Opposition to
Gotham's Motion for Preliminary Injunction filed in the Court of Common
Pleas, Cuyahoga County, Ohio on May 14, 1998."
After reasonable inquiry and to the best of our knowledge and belief,
the undersigned certify that the information set forth in this statement is
true, complete and correct.
May 15, 1998
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
------------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
President
GOTHAM PARTNERS II, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H Partners, L.P.
By: /s/ William A. Ackman
------------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
President
GOTHAM INTERNATIONAL ADVISORS, L.L.C.
By: /s/ William A. Ackman
------------------------
William A. Ackman
Senior Managing Member
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
Senior Managing Member
EXHIBIT 51
IN THE COURT OF COMMON PLEAS
CUYAHOGA COUNTY, OHIO
- --------------------------------------x
FIRST UNION REAL ESTATE EQUITY AND : CASE NO. 347063
MORTGAGE INVESTMENTS, :
:
:
Plaintiff, :
:
v. : JUDGE TIMOTHY J. McGINTY
:
GOTHAM PARTNERS, L.P., et al., : DEFENDANTS' MOTION FOR
: PRELIMINARY INJUNCTION
:
:
Defendants and :
Counterclaimants. :
:
- --------------------------------------x
Gotham Partners, L.P. and Gotham Partners, II, L.P. (together,
"Gotham"), hereby move, pursuant to Rule 65(B) of the Ohio Rules of Civil
Procedure, for a preliminary injunction (1) requiring that First Union Real
Estate Equity and Mortgage Investments (including any and all of its
Trustees, officers, agents, servants, employees, attorneys and those
persons in active concert or participation with them) ("First Union"),
submit Gotham's proposal and nominees (as described in its proxy statement,
attached as Exhibit E to Gotham's Brief in Support of Motion for
Preliminary Injunction (the "Brief"), submitted herewith), to a shareholder
vote at First Union's special meeting of shareholders on May 19 (the
"Special Meeting"); (2) requiring that First Union permit Gotham to vote
all of its shares of beneficial interest of First Union at the Special
Meeting and prohibiting First Union from taking any action to prevent the
inspector of elections at that Special Meeting from counting and certifying
Gotham's votes; and (3) requiring First Union to otherwise comply with the
procedures, set forth in Exhibit A attached to the Brief, proposed by
Gotham to ensure an orderly and fair meeting.
Despite two prior rulings of this Court supporting Gotham's right
to propose that shareholders expand the First Union Board and its right to
propose nominees to fill Board seats, First Union has consistently
evidenced its intention to disenfranchise Gotham and to keep Gotham's
proposal and nominees from reaching the First Union shareholders, in an
attempt to protect entrenched management. As recently as May 7, 1998, First
Union refused to confirm that it would present Gotham's proposal and
nominees or allow Gotham's shares to be voted at the Special Meeting.
The reasons in support of this motion are more fully set forth in
the Brief which, together with its supporting materials, including the
Affidavit of Edward McCarthy dated May 13, 1998, is incorporated herein by
reference.
Respectfully submitted,
OF COUNSEL: /s/ David C. Weiner
------------------------------
David C. Weiner (0013351)
HAHN LOESER & PARKS LLP Michael J. Garvin (0025394)
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2301
(216) 621-0150
- and -
OF COUNSEL:
/s/ John Sullivan
------------------------------
FRIED, FRANK, HARRIS, SHRIVER John Sullivan
& JACOBSON
(A Partnership Including 24th Floor
Professional Corporations) One New York Plaza
New York, New York 10004-1980
(212) 859-8000
Attorneys for Defendants-Movants
<PAGE>
IN THE COURT OF COMMON PLEAS
CUYAHOGA COUNTY, OHIO
...............................................x
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE : CASE NO. 347063
INVESTMENTS, :
:
Plaintiff, :
v. : JUDGE TIMOTHY J. McGINTY
:
GOTHAM PARTNERS, L.P., et al., : DEFENDANTS' BRIEF IN
: SUPPORT OF MOTION FOR
Defendants and : PRELIMINARY INJUNCTION
Counterclaimants. :
:
:
...............................................x
INTRODUCTION
------------
With utter disregard for shareholders and this Court, the
Trustees and management of First Union Real Estate and Mortgage Investments
("First Union" or the "Trust") have continued in their quest to thwart the
corporate electoral process and to deprive Gotham Partners, L.P. ("Gotham")
of its rights under First Union's governing documents. Most recently, First
Union has refused to agree to permit Gotham's proposal and nominees to be
put to a shareholder vote at the May 19 shareholders' meeting (the "Special
Meeting") or to allow Gotham to vote its shares at that meeting.
The Special Meeting is now less than one week away. Gotham thus
seeks an injunction requiring that First Union: (1) put Gotham's proposal
and nominees to a shareholder vote at the Special Meeting; (2) permit
Gotham to vote its First Union shares; and (3) otherwise comply with the
procedures set forth in Exhibit A attached hereto (the "Procedures") at the
Special Meeting. These Procedures are designed to ensure a fair and orderly
process at the Special Meeting, for the benefit of the shareholders, who
are entitled to a legitimate and fair election on May 19.
STATEMENT OF FACTS
------------------
As this Court is aware, on January 16, 1998, First Union filed a
complaint against Gotham seeking a declaratory judgment and permanent
injunctive relief concerning Gotham's rights as a First Union shareholder,
Gotham's standing to make a proposal and put forth nominees at the
Company's April 14, 1998 annual meeting, and Gotham's purported violations
of the Trust's Declaration and By-Laws. This Court denied First Union's
motion for a preliminary injunction in a Judgment Entry issued on March 27
(the "Judgment Entry," attached hereto as Exhibit B), and held that "[a]ll
the shareholders should have a fair opportunity to decide the direction of
their corporation at the April 14, 1998 annual meeting." Id. at 13.
Virtually immediately after this Court issued the Judgment Entry,
First Union issued a press release in which it announced, among other
things, its intention to postpone the annual meeting and in which its Chief
Executive Officer James Mastandrea stated that continued litigation was
necessary to reach a "real decision" on the issues in the case. Exhibit C.
In response, Gotham filed a motion for a preliminary injunction to, among
other things, restrain First Union from taking any steps to delay the
conduct of the annual meeting. On March 31, the parties agreed and this
Court ordered that the Special Meeting will be held on May 19, 1998, in
lieu of the annual meeting. Exhibit D.
Since that time, First Union has shown no sign that, despite the
Court's rulings, it has abandoned its intention to keep Gotham's proposal
and nominations(FN1) from the First Union shareholders and to prevent
Gotham from voting its shares at the Special Meeting. In particular, First
Union's proxy statement dated April 8, 1998, characterizes Gotham as
"purported beneficiaries"; states that Gotham "would propose to introduce
the Gotham Proposal" and if adopted "would propose to nominate the Gotham
nominees"; and recommends to shareholders that "[i]f applicable . . .
[they] vote against the Gotham proposal and against electing the Gotham
nominees." Exhibit F at 3 (emphasis added).
- -----------------------
[FN]
1 Gotham's proposal and nominations are set forth in its proxy
statement, attached as Exhibit E.
</FN>
After reviewing this proxy statement, Gotham became concerned
that First Union intended to flout this Court's Judgment Entry and deny
shareholders the ability to vote on Gotham's proposal and nominations.
Thus, on April 29, Gotham sent a letter to First Union seeking the Trust's
agreement to adhere to certain procedures at the Special Meeting. Exhibit
G. These procedures provided, among other things, that First Union would
present Gotham's nominees and proposal and would not interfere with
Gotham's voting rights. These procedures are reasonable and appropriate,
particularly in the context of a contested election. See Affidavit of
Edward McCarthy (sworn to May 13, 1998) (the "McCarthy Affidavit") P. 8.
Gotham also requested that the Board take action in advance of the Special
Meeting to approve the Gotham nominees. Exhibit G.
On May 1, First Union sent a letter to Gotham in which it failed
to agree to any procedures governing the conduct of the Special Meeting and
failed to approve Gotham's nominees. Exhibit H. On May 6, Gotham sent a
letter to First Union reiterating its requests made on April 29. Exhibit I.
On May 7, First Union responded, stating that its Trustees would
not approve Gotham's nominees and attaching a revised version of the
Procedures. Exhibit J. Critically, First Union's revised Procedures
indicate that First Union still refuses to agree that Gotham's proposal and
nominees will be presented at the Special Meeting and still refuses to
agree that Gotham has the right to vote its shares at the Special Meeting.
It thus appears that, absent a further order from this Court
granting Gotham a preliminary injunction, First Union has no intention of
allowing a shareholder vote to proceed on Gotham's proposal and nominees
and has every intention of stripping Gotham of its right to vote at the
Special Meeting.
First Union's shareholders have been submitting proxies for
weeks, many are likely to make the trip to Cleveland to attend the Special
Meeting on May 19, at great expense and inconvenience, and all expect to be
able to exercise their right to corporate democracy on that date, and to
change the direction of First Union if they so choose. See McCarthy
Affidavit P. 7. Gotham already has received proxies for approximately 9.4
million votes in favor of Gotham's proposal and nominees, while First
Union's nominees and proposals have garnered proxies representing fewer
than one million votes. Id. at P. 4. It would defy both equity and common
sense to permit the Special Meeting to proceed without rules to ensure that
a legitimate election will be held on May 19, which is precisely what will
happen without this Court's intervention. Id. P.P. 7-8.
ARGUMENT
--------
Despite months of litigation that should have been concluded with
the Judgment Entry, First Union refuses to accept that Gotham has the legal
right to put its proposal and nominees to a vote of First Union
shareholders. On the contrary, as described above, as late as May 7 First
Union rejected Gotham's right to put forth its slate of nominees, its
proposal to expand the Board, and Gotham's right to vote its shares.
It is self-evident that if Gotham is not allowed to take
advantage of its rights to present its proposal and nominees and to vote
its shares, it will be irreparably harmed. See, e.g., Int'l Banknote Co. v.
Muller (S.D.N.Y. 1989), 713 F. Supp. 612, 623 ("management subjects
shareholders to irreparable harm by denying them the right to vote their
shares or unnecessarily frustrating them in their attempt to obtain
representation on the board"); R.D. Hubbard v. Hollywood Park Realty
Enters., Inc. (Del. Ch. 1991), 1991 Del. Ch. LEXIS 9, at *18 ("the
unadorned right to cast a ballot in a contest for office, a vehicle for
participatory decision making and exercise of choice, is meaningless
without the right to participate in selecting contestants"). The only way
to ensure that Gotham will have its opportunity to effect the change in
control that is its right as a First Union shareholder is by an order of
this Court.
First Union's tenacious refusal to agree at this late date in the
parties' proxy contest to put Gotham's proposal and nominees to a
shareholder vote or to agree to allow Gotham to vote its shares at the
Special Meeting are blatant entrenchment tactics. These tactics violate the
Declaration and By-Laws and well-settled principles of corporate law, and
represent a breach of the Trustees' fiduciary duties. See, e.g., Schnell v.
Chris-Craft Indus., Inc. (Del. 1971), 285 A.2d 437, 439.
First Union has already argued before this Court -- and
resoundingly lost -- that Gotham's proposal to enlarge the Board of
Trustees violates the Declaration of Trust or the By-Laws. E.g., Exhibit B
at 12. This Court also soundly rejected First Union's efforts to
disenfranchise Gotham by nullifying Gotham's voting rights. Id. at 13
("First Union's management's efforts to disenfranchise Gotham do not appear
to be designed to protect First Union's REIT status but rather
management.").
Gotham has spent millions of dollars and focused significant
attention on the current proxy contest with First Union and will be
irreparably harmed if its opportunity to vote and to put forth its proposal
and slate of nominees at the Special Meeting is denied or delayed.
Moreover, First Union's shareholders are certain to be harmed by the lost
opportunity to change management now, since that management is clearly
acting solely out of self-interest and in violation of its fiduciary
duties. Gotham therefore requests that this Court grant Gotham the relief
it requests and order First Union to comply with the terms of the proposed
Judgment Entry submitted herewith.
Respectfully submitted,
OF COUNSEL: /s/ David C. Weiner
------------------------------
David C. Weiner (0013351)
HAHN LOESER & PARKS LLP Michael J. Garvin (0025394)
3300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2301
(216) 621-0150
- and -
OF COUNSEL: /s/ John Sullivan
------------------------------
FRIED, FRANK, HARRIS, SHRIVER John Sullivan
& JACOBSON
(A Partnership Including Professional 24th Floor
Corporations) One New York Plaza
New York, New York 10004-1980
(212) 859-8000
Attorneys for Defendants-Movants
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing Motion for
Preliminary Injunction, Brief in Support of Motion for Preliminary
Injunction, Proposed Judgment Entry, and Affidavit of Edward McCarthy were
duly served by messenger upon Frances Floriano Goins, Squire, Sanders &
Dempsey L.L.P., 4900 Key Tower, 127 Public Square, Cleveland, Ohio
44114-1304, attorneys for plaintiff, this 14th day of May, 1998.
/s/ Thomas A. Cunniff
-------------------------------------
One of the Attorneys for Defendants
Exhibit 52
IN THE COURT OF COMMON PLEAS
CUYAHOGA COUNTY, OHIO
FIRST UNION REAL ESTATE EQUITY ) CASE NO. 347063
AND MORTGAGE INVESTMENTS )
)
Plaintiff, ) JUDGE TIMOTHY J. McGINTY
)
v. )
)
GOTHAM PARTNERS, L.P., et al., )
)
) FIRST UNION'S MOTION FOR
) SANCTIONS AND BRIEF IN
) OPPOSITION TO GOTHAM'S
) MOTION FOR PRELIMINARY
) INJUNCTION
Defendants. )
)
INTRODUCTION
------------
Faced with a turning tide in its ill-mannered attempt to take over
First Union, Gotham comes back to the source of its one shining success
thus far: this Court. The time has come for this Court to tell Gotham to
win on its own or take its marbles and go home, but to stop asking this
Court to fight its battles. Gotham has no claim here, and this is little
more than a reprehensible effort to intimidate the Board into serving
Gotham's interests at the expense of the Trust and its other shareholders
- -- and to improperly use judicial process toward that end. And what is most
disturbing about this is the fact that Gotham, which has oft-repeated the
mantra "let the shareholders decide," clearly now wants no such thing.
Rather, it wants to manipulate the Board into disenfranchising the
shareholders by making it impossible for Gotham to lose --notwithstanding
what the shareholders might in fact want. Moreover, Gotham wants the Board
to do this against a factual backdrop in which it now has come to light
that the Ohio Division of Securities is conducting an investigation into
whether Gotham and its crony funds have been conducting an illegal control
bid under Ohio law.
Gotham is big on alluding that others are failing to abide by their
fiduciary duties to shareholders. And yet, when it comes down to it, it is
reluctant to put pen to paper and make a claim, because what Gotham really
means is that First Union's management has failed to slavishly comply with
Gotham's desires and demands. This latest motion constitutes yet another
egregious example of this. Gotham hints at claiming that the Board is
somehow breaching its fiduciary duties by not signing an agreement which
essentially gives Gotham -- less than a 10% shareholder in its own right --
total control of the Trust without input from the shareholders at large as
to whether they want this entity controlling their investments, and which
would exempt Gotham's shares from the record date requirements applicable
to all shares. But there is absolutely no basis in fact or law for this
phantom claim.
Gotham, contrary to what its proxy solicitor's affidavit would
indicate, apparently is now sensing that its base of support among First
Union shareholders is eroding quickly, and that the shareholders of First
Union are not exactly jumping at the opportunity to have their Trust run by
an unproven management team with no action plan and credentials that are
charitably described as shaky. The reasons for this shift in support (if,
indeed, Gotham ever had the support it claimed to have had) are manifest.
Most significantly, last Friday, Institutional Shareholders Services
("ISS"), a respected analyst group upon whose advice many of First Union's
shareholders rely, came out strongly against giving Gotham control of the
Trust, stating, "If all nine of [Gotham's] designees win seats on the
board, Gotham will control this company, and shareholders should be truly
mindful of this fact. Considering the incongruity of its action plan for
the company, ISS does not believe shareholder interests would be best
served by ceding complete control of First Union." (Ex. A, p. 1). This came
on top of the fact that Standard & Poors already had threatened to
downgrade First Union's debt in the event Gotham assumes control.
Gotham's resort to this Court for an injunction in the current
circumstances clearly constitutes sanctionable frivolous conduct. And, of
course, it should go without saying that Gotham's preliminary injunction
motion should be denied for a number of independently sufficient reasons.
First, the parties against whom Gotham actually seeks this mandatory
injunction (the Trustees) are not parties to this action. It is hornbook
law that a court may not lawfully enjoin an individual or entity that is
not a party to the action from which the injunction arises. In addition,
Gotham has made no claim, and cannot establish the likelihood of success on
the merits of its "claim" for preliminary injunction purposes. Finally,
Gotham has made no demand on the Trust's shareholders nor offered an excuse
as to why a demand was not made. For the foregoing reasons, fully explored
below, First Union's motion for sanctions should be granted, and Gotham's
motion for preliminary injunction should be denied.
LAW AND ARGUMENT
----------------
I. SANCTIONS ARE APPROPRIATE IN THIS CASE PURSUANT OHIO REVISED CODE
SECTION 2323.51 AS GOTHAM'S MOTION IS CLEARLY A SHAM
As will be demonstrated convincingly below, Gotham's filing of this
motion for preliminary injunction constitutes "Frivolous conduct" pursuant
to Ohio Rev. Code Section 2323.51, entitling First Union to an award of
court costs, reasonable attorneys' fees, and other reasonable expenses
incurred in responding to the motion. The frivolous conduct statute was
adopted in 1987 "to rectify [ ] many of the shortcomings of Civil Rule 11 "
Ceol v. Zion Industries, Inc., (Lorain Cty. 1992) 81 Ohio App.3d 286, 291.
For example, the statute (unlike Rule 11) covers the conduct of parties as
well as attorneys, and defines frivolous conduct in objective terms without
reference to the knowledge or beliefs of the person responding to the
sanctions motion. Id.
For purposes of Section 2323.51, as revised in 1996, "conduct"
includes the filing of a motion. Ohio Rev. Code section 2323.51 (A)(1)(a)
(1997). "Frivolous conduct" includes (1) conduct not warranted under
existing law, a good faith argument for an extension, modification, or
reversal of existing law, or a good faith argument for the establishment of
new law, Ohio Rev. Code section 2323.51 (A)(2)(a)(ii); and (2) factual
allegations that are neither supported by evidence nor likely to be
supported by evidence after a reasonable opportunity for investigation.
Ohio Rev. Code section 2323.51 (A)(2)(a)(iii). See Jones v. Billingham,
(Montgomery Cty. 1995), 105 Ohio App.3d 8. As is demonstrated more fully
below, Gotham's new motion for preliminary injunction is frivolous on its
face, lacking both a reasonable legal basis and any evidence likely to
support the claims. Thus, sanctions pursuant to Section 2323.51 are
appropriate, as well.
II. THIS COURT CANNOT AWARD GOTHAM THE RELIEF IT SEEKS AGAINST THE
TRUSTEES AS THE TRUSTEES ARE NOT NOW, NOR HAVE THEY EVER BEEN, NAMED
AS PARTIES TO THIS ACTION
Having expended tremendous amounts of its time and resources, to say
nothing of the time and resources of this Court and First Union, in the
fight to have its nominations and takeover proposal put to a vote of First
Union's shareholders, Gotham now seeks to have this Court enjoin First
Union's Trustees in such a manner as to, in essence, disenfranchise the
remainder of First Union's shareholders. This Court, however, cannot enjoin
First Union's Trustees because it has not, in the first instance, obtained
jurisdiction over First Union's Trustees, several of whom reside outside of
Ohio. First Union filed this case against Gotham Partners, L.P. and Gotham
Partners II, L.P. Gotham counterclaimed against First Union (which
counterclaim is now, by Gotham's admission, moot). THE TRUSTEES OF FIRST
UNION HAVE NEVER BEEN NAMED AS A PARTY TO THIS ACTION, AND AS SUCH, THIS
COURT DOES NOT HAVE JURISDICTION TO ISSUE ANY INJUNCTIVE RELIEF AGAINST
THEM.
III. A PRELIMINARY INJUNCTION IS NOT APPROPRIATE IN THIS CASE AS GOTHAM
CANNOT ESTABLISH ANY OF THE REQUISITE ELEMENTS BY CLEAR AND CONVINCING
EVIDENCE
A. THE LEGAL STANDARD FOR A PRELIMINARY INJUNCTION
-----------------------------------------------
A preliminary injunction is an extraordinary remedy of equity used
only when there is no adequate remedy available at law. Garono v. State, 37
Ohio St. 3d 171, 173 (1988). A party does not have an automatic right to a
preliminary injunction; rather, a preliminary injunction is granted only
when it is necessary to prevent a future wrong that the law cannot correct.
Id. The decision of whether to grant or deny a preliminary injunction is a
matter solely within the discretion of the trial court. Danis Clarkco
Landfill Co. v. Clark County Solid Waste Management Dist., 73 Ohio St. 3d
590, 604 (1995); Garono, 37 Ohio St. 3d at 173; Consun Food Indus., Inc. v.
Fowkes, 81 Ohio App. 3d 63, 69 (Lorain Cty. 1991).
In exercising its discretion on a motion for preliminary injunction,
the trial court must consider four prerequisites: (1) whether there is a
substantial likelihood that the plaintiff will prevail on the merits; (2)
whether the plaintiff will suffer irreparable injury if the injunction is
not granted; (3) whether others will be unjustifiably harmed if the
injunction is granted; and (4) whether the public interest will be served
by the granting of the injunction. Goodall v. Crofton, 33 Ohio St. 271, 276
(1877); Vanguard Transp. Sys., Inc. v. Edwards Transfer & Storage Co., 109
Ohio App. 3d 786, 790 (Franklin Cty. 1996); Corbett v. Ohio Bldg. Auth., 86
Ohio App. 3d 44, 49 (Franklin Cty. 1993). To obtain a preliminary
injunction, Gotham must show each of these elements by clear and convincing
evidence. Vanguard Transp. Sys., Inc., 109 Ohio App. 3d at 790; Mead Corp.
v. Lane, 54 Ohio App. 3d 59, 63 (Ross Cty. 1988). Gotham cannot meet the
requisite standard of proof as to even one of these elements.
B. GOTHAM WILL NOT SUCCEED ON THE MERITS OF ITS CLAIM
--------------------------------------------------
In the first instance, no injunction can issue here because Gotham has
not even stated a claim upon which such an injunction can issue. It is
hornbook law that, when a movant seeks a mandatory injunction against a
party on a cause of action not made against that party, no injunction can
issue. Weir v. Whitney, 57 N.E.2d 715 (Cuyahoga Cty. App. 1944) ("Clearly
there is no basis in this case for granting what is, in effect, a permanent
mandatory injunction upon a cause of action not mentioned in the
petition"). Gotham's motion for preliminary injunction is based upon an on
orphan "claim," presumably against First Union's Board of Trustees, which
to this day has never been asserted in this action. As the claim has not
been made, nor have the Trustees been served process with respect to it,
nor have they been given any opportunity to conduct discovery to defend
themselves against this motion. Under these circumstances, it would be a
fundamental denial of due process and plain error to grant Gotham's Motion.
The foregoing factor, alone, is dispositive of Gotham's motion. But
assuming arguendo Gotham had made a claim, an injunction still could not
appropriately issue. To obtain a preliminary injunction, Gotham must first
show -- by clear and convincing evidence -- that there is a substantial
likelihood that it will prevail on the merits of its claim. Goodall, 33
Ohio St. at 276; Vanguard Transp. Sys., Inc., 109 Ohio App. 3d at 790;
Corbett, 86 Ohio App. 3d at 49. Not surprisingly, in light of the glaring
absence of a claim upon which to premise its motion, Gotham does not bother
to discuss in its motion papers this critical aspect of the preliminary
injunction ANALYSIS. Instead, it skips right ahead to the "irreparable
harm" factor. This is troubling, because if Gotham had bothered to
undertake a "merits" analysis, it would have seen that it is unable to
establish by clear and convincing evidence that, under Ohio law, a breach
of fiduciary duty on the part of the trustees has taken place or will take
place. Moreover, as Gotham has not complied with the mandatory requirements
for pleading a derivative claim, its claim must fall as a matter of law.
Accordingly, Gotham's motion for a preliminary injunction should be denied.
1. GOTHAM'S "CLAIM" HAS NO BASIS UNDER OHIO LAW
Gotham's motion would appear to be based on an unasserted derivative
claim premised on the First Union TRUSTEES' alleged breach of fiduciary
duties. After all, the letters asking First Union to agree to Gotham's
proposed agreement regarding procedures were all directed to the Board of
Trustees of First Union, so, presumably, Gotham believes it is the Board
who is acting wrongfully. Ohio law applies here and, unlike Delaware law,
OHIO LAW HAS UNEQUIVOCALLY REJECTED DELAWARE'S ENHANCED SCRUTINY STANDARD
IN A CONTROL CONTEST. As Justice Holmes noted in his concurrence in Stepak
v. Schey, 51 Ohio St.3d 8 (1990) (Ex. B), the general assembly enacted
amendments to Ohio Rev. Code ss. 1701.59 and ss. 1701.60 "in order to
significantly increase the protection afforded to corporate directors":
THE PURPOSE BEHIND THE ADOPTION OF THESE AMENDMENTS WAS "TO
MAKE CLEAR THAT A DIRECTOR HAS THE BENEFIT OF A PRESUMPTION
THAT HE [OR SHE] IS ACTING IN GOOD FAITH AND IN A MANNER HE
[OR SHE] REASONABLY BELIEVES IS IN (OR NOT OPPOSED TO) THE
BEST INTERESTS OF THE CORPORATION IN ALL CASES, INCLUDING
THOSE AFFECTING OR INVOLVING A CHANGE IN CONTROL OR A
TERMINATION OF HIS [OR HER] SERVICES. It is believed that
the changes are necessary because of the adoption by some
courts, notably those of Delaware, of the view that, in such
cases, the director becomes an interested party and, as a
result, loses the benefit of the business judgment rule."
Id. at 13, quoting 1986 Commentary, OSBA Corporation Law Committee (quoted in
Burton & Rich, Ohio Corporation Law & Practice [1989] 109, Section 6.4).
As the Cuyahoga County Court of Appeals noted, when it comes to board
decisions, "[a] court will apply the business judgment rule ... unless the
defense is made inapplicable by proof of the director's personal interest
or self-dealing." Worth v. Huntington Bancshares, Inc., No. 52861, 1987
Ohio App. LEXIS 9827 (Cuy. Cty. App. Nov. 25, 1987) (Ex. C), aff'd Worth v.
Huntington Bancshares, Inc., 43 Ohio St.3d 192,197 (1989) (Ex. D). Gotham,
of course, cannot establish by clear and convincing evidence (or any
evidence at all) personal interest or self-dealing on the part of the
Board. See also Abrahamson v. Waddell, 63 O. Misc. 2d 270 (Hamilton Cty.
1992) (corporate directors are not required to submit every acquisition
proposal to shareholders and under Ohio law, directors are granted a
statutory presumption that they have acted in good faith and in the best
interests of the corporation).
The primary unalleged "breach of fiduciary duty" which Gotham seeks to
have this Court enjoin involves a proposed voting agreement as to a
procedure for the conduct of the upcoming special meeting which First Union
declined to accept wholesale. Gotham asks the Court to force the Board of
Directors of First Union, a public real estate investment trust traded on
the New York Stock Exchange, to enter the proposed agreement with Gotham.
In and of itself, some agreement along these lines would not be
unreasonable. Gotham's proposed agreement, however, contains a myriad of
superfluous clauses designed, among other things, to waive First Union's
rights against Gotham in this and other litigation and to hoodwink the
other shareholders into believing that the Board supports Gotham's control
bid. And that is, in a word, unacceptable, particularly when it recently
has come to light that Gotham is under investigation by the Ohio Division
of Securities,(FN1) which has the statutory authority to stop Gotham's takeover
in its tracks if it finds that Gotham has not compiled with the Ohio
Control Bid Statute (See O.R.C. ss.ss. 1701.25, 1701.26); Standard & Poors
has publicly announced that First Union's Senior Notes will be downgraded
if Gotham assumes control; and ISS has advised shareholders to vote against
Gotham's takeover proposal.
- -------------------
[FN]
1 First Union has talked to representatives of the Ohio Division of
Securities, who have advised First Union that the Division has
independently determined that there is sufficient basis to institute
an inquiry and, pursuant to O.R.C. ss. 1707.23, the Division has
confirmed that it has sent a request to Gotham to produce certain
information regarding its control bid for First Union because of
possible violations of the Ohio Control Bid Act.
</FN>
Nonetheless, Gotham suggests that these extraordinary proceedings are
necessary, and an injunction must immediately issue, because the Trustees
have refused to accede to Gotham's wishes and sign off on the Gotham
agreement. But this argument cannot withstand even cursory scrutiny. As a
preliminary proposition, it must be noted that First Union's Board is under
no obligation to enter into such an agreement, nor is Gotham in any way
entitled to force First Union to do so. Indeed, the power to establish
procedures for the Special Meeting lies within the exlusive domain of the
Trustees, not shareholders such as Gotham, and the Declaration of Trust
makes that fact eminently clear. See Declaration of Trust, Section 2.1
("The Trustees shall have all powers necessary, convenient or appropriate
to effectuate the purposes of the Trust and may take any action which they
may deem necessary or desirable to that end . . . ."); Section 6.1 ("The
right to conduct the affairs of the Trust are vested exclusively in the
Trustees . . . .").
Moreover, it would be a tremendous abdication of the Trustees'
oversight responsibilities with respect to this election if First Union
were to enter into the sort of blanket agreement Gotham desires. It is
undisputed that all the shareholders, including Gotham, are entitled to
vote ONLY THE SHARES THEY OWNED AS OF THE RECORD DATE FOR THE SPECIAL
MEETING. Gotham would, in its reckless quest for control of the Trust,
ignore this critical fact. But what if Gotham acquired beneficial shares of
First Union yesterday, for example? Under Gotham's proposed agreement,
Gotham would be entitled to vote any and all shares, including those
purchased after the record date (while similarly situated shareholders, of
course, would not). The fact that, in an election in which it seeks
control, Gotham is already attempting to invest its own shares with rights
in excess of those owned by the Trust's other shareholders speaks volumes
about Gotham's true feelings on the meaning of corporate democracy.
Nor is Gotham satisfied at stopping there. Gotham wants the
preliminary injunction to mandate all of the "Procedures" on its wish list.
For example, the "Procedures" First Union has refused to wholesale adopt
include Gotham's request that Corporation Trust Company ("CT"), the
independent inspector of elections, provide a preliminary report by 5:00
p.m. on Tuesday, regardless of whether CT has completed its tally. Such a
report, though, would be of little or no consequence to First Union, Gotham
or the rest of First Union's shareholders, as only a completed tally could
be deemed to constitute the official declaration of the results of the
meeting. A premature tally could likewise send misleading signals to the
market. While Gotham's anxiety about the outcome is understandable, this
Court's extraordinary equitable powers cannot be used as the functional
equivalent of tea leaves. And it is not as if CT's independence and
integrity are in dispute, nor is there any basis to believe that CT's tally
will be any more timely or complete if it is required to make a speculative
preliminary report, based upon an incomplete and partial tally, by 5:00
p.m. on Tuesday.
In addition, the proposed agreement was drafted in a manner that
legitimately gave the Trustees pause as to whether, by its terms, it would
constitute a waiver of First Union's claims in this litigation and related
matters. In response, and in the course of good faith negotiations, First
Union offered the following proposed additional langauge to address this
concern:
WHEREAS, none of the parties intend for this Agreement to
operate as a waiver of any rights or claims any of them has
in any pending litigations between them or otherwise, or to
impact in any way the issues of whether Gotham had the right
to make its proposals to shareholders or has the right to
vote at the Meeting its own shares or proxies it has
solicited.
(First Union Revised Proposed Agreement, p. 1.) Gotham refused to accept
this proposal, and instead ran to this Court screaming foul. And yet, if
Gotham's true intent was something other than fooling the Board into
waiving its claims against Gotham, what would have been the harm in
agreeing to First Union's proposed clarification? The question answers
itself.
It is not as if First Union has been unreasonable about attempting to
work with Gotham on resolving these issues -- as they ought to be resolved
- -- without the intervention of this Court. As already noted, First Union
provided well in advance of the filing of Gotham's motion a revision of
Gotham's proposed agreement regarding procedures for the conduct of the
Special Meeting which is quite similar to Gotham's, except that it deletes
the gratuitous references to the Board's purported "approval" of Gotham's
slate and clarifies issues such as the aforementioned ones. The revision
offers a framework for the vote that is workable and fair to the
shareholders, and no one could reasonably object to it. As is Gotham's
habit, however, it had to have it all; it had to have a "Procedure" that
was not "fair," but rather slanted.
Frankly, it is hard to believe that Gotham would ask a court in equity
to step into what are, in essence, business negotiations and dictate the
inclusion of certain terms over others, particularly against the backdrop
of Ohio's business judgment rule. One can only wonder what will be next.
Will Gotham ask this Court to order First Union to purchase certain
properties as opposed to others? Or raise or lower rents? Or start buying
its office supplies at a Gotham-owned discount house? Quite plainly, there
is no place for a mandatory injunction in business negotiations such as
these, and the fact that Gotham seeks one indicates Gotham may be a bit too
emboldened by its self-perceived past litigation successes.
This raises another more basic issue. Gotham claims that it will be a
breach of fiduciary duty for the Board not to work with Gotham in the
manner Gotham insists it must. Yet, the market is sending signals that
would indicate that quite the opposite is true. For example, the recent ISS
recommendations that, while three members of Gotham's slate should be
elected to the Board, the size of the Board should not be expanded, presage
the clear possibility of a Gotham defeat in the upcoming election. ISS is
recommending against giving control of First Union to the Gotham forces.
Indeed, ISS specifically identified as Gotham's weaknesses its action plan
for the Trust and the individuals it has nominated for trustee:
[Gotham's] biggest failing in this proxy contest is in
having drawn its list of nominees from its own in-house
talent rather than seeking truly independent candidates.
Virtually every one of its nominees is an employee, limited
partner, or affiliate of Gotham. This may constitute a slate
that is independent of the company, but it is not
independent of Gotham. If all nine of its designees win
seats on the board, Gotham will control this company, and
shareholders should be truly mindful of this fact.
Considering the incongruity of its action plan for the
company, ISS does not believe shareholder interests would be
best served by ceding complete control of First Union.
(ISS Report, p. 21.)
While it should come as a surprise to no one, a target corporation's
board has a fiduciary duty to resist a takeover that it believes is not in
the best interests of the target entity or its shareholders. See, e.g.,
Heit v. Baird, 567 F.2d 1157, 1161 (1st Cir. 1977); Northwest Indus., Inc.
v. B. F. Goodrich Co., 301 F. Supp. 706, 712-13 (N.D. Ill. 1969); McPhail
v. L. S. Starrett Co., 257 F.2d 388, 396 (1st Cir. 1958); Abrahamson v.
Waddell, 63 Ohio Misc. 2d 270 (Hamilton Cty. 1992). In light of the
information available to the Board militating against approval of Gotham's
proposals, it simply is not possible for Gotham to carry its burden of
establishing by clear and convincing evidence that the Board's refusal to
enter into an agreement which essentially hands over the Trust to Gotham is
a breach of its fiduciary duties. Thus, Gotham's motion for preliminary
injunction must be denied.
2. NO DEMAND HAS BEEN MADE UNDER OHIO CIVIL RULE
23.1, NOR HAVE ANY OF THE OTHER MANDATORY PLEADING
REQUIREMENTS FOR A DERIVATIVE ACTION BEEN MET
Gotham's claim is, of course, in the nature of a derivative action.
Ohio Civil Rule 23.1 contains a specificity of pleading requirement
mandating a plaintiff bringing a derivative claim on behalf of a
corporation to make a demand on the Board and, if necessary, on the
shareholders, and allege with particularity its failure to obtain the
action or for not making the effort. See Ohio R. Civ. P. 23.1. The reasons
for the demand requirement are several. First, it must be remembered that
the claim belongs to the corporation or, in this case, the Trust; See
Norris v. Weir, 35 Ohio App. 3d 110, 520 N.E.2d 10, Syllabus P. 3 (Cuyahoga
Cty. 1987) ("The heart of a Civ. R. 23.1 action is the corporate claim.");
overruled on other grounds Perry v. Eagle-Picher Industries, 52 Ohio St.3d
168 (1990). It only makes sense, therefore, that before a shareholder can
assert the Trust's claim, the Trust should have the opportunity to decide
whether litigation is in its best interests. The demand requirement also
recognizes that "the business and affairs of the corporation are managed by
and under the direction of its board." Pogostin v. Rice, 480 A. 2d 619, 624
(Del. 1984). Managing the affairs of a trust includes the right to decide
whether the trust should engage in derivative litigation. Aronson v. Lewis,
473 A.2d 805, 811-12 (Del. 1984). Gotham has not, of course, alleged
anything about a demand in its Counterclaims. In addition, Gotham has
failed to meet various other prerequisites to the proper filing of a
derivative claim, which have been set forth at some length in First Union's
Motion to Dismiss Counts I, II, II, IV and V of Gotham's Counterclaims at
pp. 7-9, and will, for the sake of brevity, be incorporated herein by
reference.
C. THERE IS NO THREAT OF IRREPARABLE HARM TO GOTHAM IF THE
PRELIMINARY INJUNCTION IS NOT GRANTED
The mere fact that Gotham contends, hot on the heels of ignoring
altogether the issue of likelihood of success on the merits, that
irreparable harm is "self-evident," should give this Court pause. Moreover,
if there is any doubt that irreparable harm does not exist in these
circumstances, it should be resolved by the fact that Gotham has previously
represented to the Court, in opposing First Union's motion for preliminary
injunction, that "full relief can be granted after a shareholder vote."
(See Defendants' Supplemental Brief in Opposition to Plaintiff's Motion for
a Preliminary Injunction, p. 25.) In any event, Gotham's entire motion -
irreparable harm and all - is based on pure speculation arising from little
more than Gotham's paranoid interpretations of a few words in a proxy
statement. This simply does not suffice as a basis for the issuance of the
extraordinary remedy of an injunction. Moreover, Gotham has not
demonstrated that it would not have an adequate remedy at law, and if there
is an adequate remedy available at law available, equity must not
interfere. Id.
D. THE BOARD, FIRST UNION AND ITS SHAREHOLDERS WILL BE
UNJUSTIFIABLY HARMED IF THE PRELIMINARY INJUNCTION
IS GRANTED
The Court should not grant Gotham a preliminary injunction for the
additional reason that the Board, First Union and its shareholders will be
unjustifiably harmed by an injunction. Ohio courts have firmly established
that a preliminary injunction should not be granted if greater injury would
be done by granting an injunction than by leaving the parties to their
remedy at law. Goodall, 33 Ohio St. at 273; Restivo, 113 Ohio App. 3d at
520-21; Rite Aid v. Marc's Variety Store, Inc., 93 Ohio App. 3d 407, 412
(Cuyahoga Cty. 1994). Stated another way, if granting an injunction causes
more injury to the defendant than advantage to the plaintiff, an injunction
should not be granted. Goodall, 33 Ohio St. at 277; Restivo, 113 Ohio App.
3d at 520-21; Rite Aid, 93 Ohio App. 3d at 412. This is essentially a
balancing test weighing the irreparable harm that would result to the
plaintiff if the injunction were denied and the harm that would be caused
to the defendant if the injunction were granted. Goodall, 33 Ohio St. at
277; Restivo, 113 Ohio App. 3d at 520-21; Rite Aid, 93 Ohio App. 3d at 412.
If a preliminary injunction were granted in this case, the
overwhelming balance of the hardship would be placed on the Board, First
Union and its shareholders. The Board will be forced to make "decisions"
that are against their better business judgment. The shareholders,
meanwhile, will be misled into thinking that the Board suppoits the control
bid of Gotham, notwithstanding the fact that Gotham's assumption of control
would be viewed negatively by the market and notwithstanding the fact that
Gotham is currently being investigated by the Ohio Division of Securities
for violations of Ohio's securities laws. Moreover, as Gotham itself has
pointed out in the past, this Court risks sending a message to the
shareholders that it has made a determination that Gotham should take
control of First Union: "THIS COURT . . . SHOULD BE WARY OF INTERJECTING
ITSELF INTO WHAT SHOULD BE A FREE AND FAIR COMPETITION BETWEEN FIRST UNION
AND GOTHAM FOR THE HEARTS, MINDS, AND VOTES OF FIRST UNION'S SHAREHOLDERS."
(GOTHAM'S 3/2/98 BR. IN OPP. TO PL.'S MOT. FOR PRELIM. INJ, P.6) The harm
to the election process would be immeasurable if this Court "pre-approves"
Gotham's control bid, as Gotham is asking it to do. This provides yet
another basis for denying the motion for preliminary injunction.
E. PUBLIC POLICY MANDATES THAT GOTHAM'S MOTION FOR PRELIMINARY
INJUNCTION BE DENIED
Finally, there are important public policy considerations at issue
here. In accordance with the analogous Ohio corporate governance statutes,
boards are elected by the shareholders to use their best business judgment
in steering companies through situations like the one at issue. Gotham
stands before this Court saying, in essence, that this Court should take
away that statutorily mandated shareholder protection because,
notwithstanding the fact that it is not part of a "group" for Rule 13(d)
purposes and, according to it, holds less than 9.6% of First Union's
shares, it just happens to know that it speaks for a majority of the
shareholders and will win the election. Thus, according to Gotham, the
Court should disregard the fact that no vote has yet occurred, as the vote
will be a mere formality, and should today hand over to Gotham the Board's
decision making authority, as it will soon be Gotham's anyway. But at least
one securities regulatory body has found Gotham's conduct herein to merit
further investigation. As a matter of public policy, the Court should
forestall declaring Gotham the winner until that entity concludes its
investigation, or, at the very least, until such time as shareholders have
had a chance to speak -- unbullied -- on Gotham's control bid. To further
these important public policies, the Court should deny Gotham's Motion for
Preliminary Injunction.
CONCLUSION
----------
For the reasons set forth herein, First Union respectfully requests
that Gotham's Motion for Preliminary Injunction be denied, and that First
Union's Motion for Sanctions be Granted.
Respectfully submitted,
/s/ Frances Floriano Goins
--------------------------------
Frances Floriano Goins (0018631)
Martha S. Sullivan (0064040)
SQUIRE, SANDERS & DEMPSEY L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
James P. Murphy (0003874)
SQUIRE, SANDERS & DEMPSEY L.L.P.
1201 Pennsylvania Avenue N.W.
P.O. Box 407
Washington, D.C. 20044
(202) 626-6600
Attorneys for Plaintiff
First Union Real Estate
Equity and Mortgage Investments
CERTIFICATE OF SERVICE
----------------------
A copy of the foregoing FIRST UNION'S MOTION FOR SANCTIONS AND BRIEF
IN OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION was served this day of
14th day of May, 1998, by hand delivery upon David C. Weiner, Esq., Hahn
Loeser & Parks L.L.P., 3300 BP America Building, 200 Public Square,
Cleveland, Ohio 44114-2301; and by U.S. Mail, postage prepaid upon
Alexander R. Sussman, Esq., Fried, Frank, Harris, Shriver & Jacobson, One
New York Plaza, New York, New York, 10004, counsel for Plaintiffs Gotham
Partners, L.P., and Gotham Partners II, L.P.
/s/ Frances Floriano Goins
----------------------------------
One of the Attorneys for Plaintiff
First Union Real Estate Equity and
Mortgage Investments
